The Swiss Financial Market Supervisory Authority (FINMA) has recently published guidance on the issuance of stablecoins, highlighting significant risks associated with these digital assets. According to FINMA, stablecoins not only increase the potential for money laundering but also pose reputational risks to the entire Swiss financial sector.
Stablecoin Issuers as Financial Intermediaries
In its latest guidance, FINMA stresses the importance of mitigating risks related to money laundering, terror funding, and sanctions evasion that are associated with stablecoins. The regulator recommends classifying stablecoin issuers as financial intermediaries to enforce stricter anti-money laundering (AML) regulations.
“The stablecoin issuer is therefore considered a financial intermediary for the purposes of anti-money laundering legislation and must, among other things, verify the identity of the stablecoin holder as the customer in accordance with the applicable obligations (Art. 3 AMLA) and establish the identity of the beneficial owner (Art. 4 AMLA),” states the regulator’s guidance.
Default Guarantees and Regulatory Framework
FINMA also addressed the operational framework for Swiss stablecoin issuers, who typically use default guarantees from banks to function without a banking license. The regulator has developed a framework to protect depositors, setting “minimum requirements for the applicability of the exception for default guarantees.”
The guidance specifies that customers must be informed about the default guarantee in case of the issuer’s bankruptcy. Issuers must ensure that the total deposits covered do not exceed the upper limit of the default guarantee. Moreover, the claim must be due at the time insolvency proceedings are initiated, not only when a certificate of loss is issued, to enable customers to quickly call upon the default guarantee.
Addressing Risks and Enhancing Protections
While acknowledging that these measures do not offer the same level of protection as a banking license, FINMA remains committed to addressing the risks associated with default guarantees. The regulator’s steps are aimed at enhancing depositor protection and maintaining the integrity of the Swiss financial system.
By classifying stablecoin issuers as financial intermediaries and implementing stringent AML measures, FINMA aims to mitigate the risks posed by stablecoins and uphold the reputation of Switzerland’s financial sector.
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